Credit Suisse Blows The Whistle On Property Trick

THE ROSY picture that is being painted by property developers may not be quite what it seems.

A Credit Suisse report on the Singapore property sector highlighted the practice of property developers who talk up the numbers prior to and during the launch of their projects, but in reality see those figures drop after the first month.

As part of their sales tactics, developers will report healthy numbers of showroom visitors leading up to the launch.

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Inaccurate Numbers

On the first day of sales they will announce that a large percentage of units were sold.

However, a month on, these numbers may drop as buyer’s remorse kicks in, resulting in unfulfilled sales contracts.w-atelier-dining-sale-448

The Credit Suisse report highlights another tactic that some property developers use to mask true numbers.

Buyers of new launch projects are required to pay 5% of the purchase price as a booking fee, before being issued an Option To Purchase (OTP). The buyer stands to forfeit 25% of this amount should he or she fail to complete the purchase,  and the unit would be returned to the developer.

According to the Credit Suisse report, “since the July 2018 cooling measures, we observed persistent ‘returned’ units at selected projects, and a spike in returned units in December 2018, to 398 units”.

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Goldbell Group

Navigating A Tight Sector

The report adds that after conducting their own checks, a lot of these returns are not due to buyer’s remorse, but “the emergence of an ingenious sales tactic”.

“OTPs are continually re-issued to buyers upon expiry of the three-week validity, without any forfeiture of booking fees. Amidst keen competition with up to 24,567 launch units in 2019, we believe developers are motivated to lock in buyers early; while pliant buyers too would be keen on securing a unit at a favourable price, amid tight financing conditions, while potentially taking a view on future Additional Buyer’s Stamp Duty (ABSD) savings.”

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Private residential developers launch their projects up to 18 months from being awarded a site. If they can sell all their units within five years of the site acquisition date, they are awarded the ABSD remission. If they fail to do so, it will be clawed back, with interest payable.

While there are no official statistics on the number of returned units, Credit Suisse calculated the number of returned units based on the monthly Urban Redevelopment Authority sales data.

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What’s The True State Of The Property Market?

Based on this data, the report observed “a spike in the number of implied returned units in December 2018 to 398 units, driven largely by two new projects launched in November 2018, Whistler Grand (116 units) and Parc Esta (113 units).

“Based as a percentage of the total sales in the previous month, the percentage of returned units similarly rose to a high of 34.2% in December 2018.”

Ku Swee Yong, CEO of International Property Advisor expressed concern about the large margins of errors being quoted.

“These monthly numbers are important because they provide a regular gauge of the health of the new sales market. Stock investors and banks lending to developers will also rely on these monthly sales figures to make decisions,” Ku says.

While the report sheds some light on the true colour of the rosy forecasts of property consultants, it also alerts its clients to the practices of property developers in a difficult market.

Main image: Shutterstock

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  1. In light of the corporate compliance fiascos such as Hyflux and Nobel, I hope to see more reports from honest analysts who can highlight investment potholes.


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